Mergers and Acquisitions Issues & Challenges -Sim Ng, President of ASHK -Ellick Tsui, Sun Life Hong Kong Ltd -Lawrence Lai, AXA China Region Insurance...
Mergers and Acquisitions Issues & Challenges -Sim Ng, President of ASHK -Ellick Tsui, Sun Life Hong Kong Ltd -Lawrence Lai, AXA China Region Insurance Co Ltd
Mergers and Acquisitions - Issues & Challenges
1+1=3 or 1+1=0
Mergers and Acquisitions - Issues & Challenges
11 ++ 11 == 33 Examples: (1) Chevron’s $44 billion takeover of Texaco in 2001, Chevron shares have increased by 75% since the deal was completed. (2) Bank of America shares have increased by 20% since the acquisition in 2004 of Fleet Boston Financial.
Mergers and Acquisitions - Issues & Challenges
11 ++ 11 == 00 Examples: (1) UniCredit shares decreased by 10% since it announced plans in May 2007 to buy Capitalia for $30 billion. (2) Daimler-Benz’s $36 billion purchase in 1998 of Chrysler wiped out $12.6 billion in market value in nine years. …… nearly 60% of acquisitions completed from 1992 to 2006 reduced shareholder returns [source : Boston Consulting Group’s analysis of more than 3200 transactions]
Mergers and Acquisitions - Issues & Challenges
Lawyers Lawyers Consulting Consulting Firms Firms
Shareholders Shareholdersof of Buying Company Buying Company
Shareholders Shareholdersof of Selling SellingCompany Company
Investment Investment bankers bankers
Pre-transaction processes
Seller
Buyer
Information InformationMemorandum Memorandum Indicative IndicativePrice Price
Due DueDiligence Diligence
Negotiation Negotiationof of Sale & Purchase Agreement Sale & Purchase Agreement (“S (“S&&P”) P”)
Outcome
Agreement
Unsuccessful
OR
• Price • Representations & Warranties
Involvement of Actuaries
Seller Seller
Buyer Buyer
Price
Price
Defend basis for valuation of policy liabilities
“Find flaws” with valuation assumptions, etc. which have an impact on price.
S & P Agreement
S & P Agreement
Provide minimal representations and warranties
Require maximum representations and warranties.
Examples of Representations & Warranties Accounts The Accounts : a) were prepared in accordance with the requirements of applicable Laws, and in accordance with the Accounting Standards consistently applied, as at the Last Balance Date; and b) give a true and fair view of each of the financial position and the performance of the Group for the financial period ended on the Last Balance Date and all material financial transactions of the Group have been accurately recorded in the Last Accounts.
Examples of Representations & Warranties Actuarial • • • •
The company is solvent. No material liability to any policyholders other than those set out in the accounts. True and complete copies of actuarial report, etc… Details of all reinsurance arrangements have been disclosed.
Mergers and Acquisitions Issues & Challenges -Sim Ng, President of ASHK -Ellick Tsui, Sun Life Hong Kong Ltd -Lawrence Lai, AXA China Region Insurance Co Ltd
After M&A -
Challenge of manage different block of businesses Challenge of manage different distribution channels Challenge of different cultures
product product harmonisation harmonisation
compensation compensation harmonisation harmonisation model model harmonisation harmonisation valuation valuationbasis basis harmonisation harmonisation
To policyholders, two companies are separate entities More complexities in back office, e.g. regulatory filing, policyholders information integrity…
Single Company -
To policyholders, two companies become a single entity Consolidated back office support, may have more synergy
Scheme Transfer -
Scheme Transfer is a process of transferring all existing business from one company to another company Heavy involvement of an actuary Key parties that an actuary work with: consulting firm (an independent actuary), lawyer and regulator Need to have approval from High Court of HKSAR and Supreme Court of Bermuda Need to communicate to all existing policyholders of both buying and selling companies
Scheme Transfer
SUN LIFE FINANCIAL INC.
Sun Life Assurance Company of Canada
CMG Asia Limited
Renamed in late February 2006
Sun Life Hong Kong Limited
Scheme of Transfer
Sun Life Financial (Hong Kong) Limited
Scheme Transfer
The Actuary needs to consider:
Policyholders Policyholdersof of Buying BuyingCompany Company
Policyholders Policyholdersof of Selling SellingCompany Company
ACTUARY ACTUARY
Shareholders Shareholders
Regulator Regulator
Scheme Transfer -
Policyholders of the Buying / Selling Company: -
-
Any benefits of the Scheme Transfer to policyholders? Any detrimental impacts of the Scheme Transfer to policyholders? Par Policyholders: (1) ring-fenced the block of transferring policyholders’ assets? (2) ensure the block of original policyholders’ assets unaffected? (3) how to maintain fairness between blocks of policyholders? (4) any impact on financial security? (5) any change to provisions? Non-Par Individual or Group or MPF or Pension Policyholders: (1) any impact to guaranteed elements? (2) any change to provisions?
Scheme Transfer -
Shareholders: -
-
Any benefits of the Scheme Transfer to shareholders?
Regulators: -
Policyholders’ interests need to be protected Financial security and solvency of the Company Related product approvals from SFC Communication to policyholders and complaint / queries management process Independent Actuary’s report
Mergers and Acquisitions Issues & Challenges -Sim Ng, President of ASHK -Ellick Tsui, Sun Life Hong Kong Ltd -Lawrence Lai, AXA China Region Insurance Co Ltd
Case Study (1/2) M&A Issues to be considered (When? Before or after the purchase price is set?): - Is it a domestic or global M&A? - Are there only 1 buyer and 1 seller? - What are the business drivers? - What is the distribution strategy? - What is the product strategy? - What is the system and IT strategy? - How much synergy effect we build in the price? - Is fixed price the only option? How to reach an agreement when buyer and seller have different views? - Consultant retention? What are the validation rules? - Reporting issues? Which GAAP?
Case Study (2/2) M&A Issues to be considered: - How to handle the acquired company? Merged or keep it separate? Would company name changed after M&A? - How to handle back office and sales support units? Which parts to integrate and which parts to keep separate? - What is the impact to policyholder? - Staff issues? Culture issue? - How long it takes for planning the design? How long it takes to implement? - Any regulatory product approval required? How long it takes? - How to communicate the change to policyholder?